​HOUSTON
(March 9, 2015) – Lower oil
prices will have effects across the Houston commercial real estate market, but
fears of broad-based decline are overblown, according to a new report from CBRE
Research. The report finds that the degree of impact will vary based on the
magnitude of change in employment, and by property type, with expected impact
to the retail sector being negligible and the office sector, modestly
negative.

“The
outlook for Houston commercial real estate is less positive than a year ago, and
certain submarkets and property sectors can expect to see at least temporary shortfalls
in demand,” said Spencer Levy, Americas Head of Research, CBRE. “However, we
expect oil prices to slowly drift up over the next two or three years. That,
plus strong growth in the U.S. economy will limit the impact of the recent drop
in prices on the market.”​

Much has
been written in the popular, economic and real estate press about the
challenges the Houston economy may face due to low oil prices. However, in commercial
real estate the story is more nuanced, with a number of considerations,
including:​

The U.S. economy will benefit on net from
lower oil prices, with the positive impact to consumer spending potentially
boosting real GDP growth by up to 0.7 percent in 2015, according to Moody’s
Analytics.​

Houston’s economy is entering this period
from a position of strength, having gained four new jobs since 2009 for each
one lost during the recession while experiencing income growth about the
national average.​

While energy is a key industry in the
Houston economy, the sector has also diversified across the energy industry’s
three segments – upstream, midstream and downstream – and each is impacted by
lower oil prices in different ways. Most notably, the negative impacts to
exploration and production (upstream) will be partially offset by positive
impacts on petrochemical manufacturing (downstream).​

Retail is best positioned among the
property types because the spending of Houstonians will benefit from lower
gasoline prices, the occupancy rate is historically high and construction of
new shops has been uniquely constrained in this cycle.​

The office market is most exposed due to the
Houston’s concentration of upstream energy headquarters and major operations as
well as the amount of new supply coming on line through 2017.​

Impacts to industrial and multifamily will
likely be limited to slower rent growth. Both sectors enter this period with
strong occupancy and face offsets to weakness in the upstream segment from
downstream expansion and, for multifamily, support for continued demand from a
tight single-family market.​

“Ultimately,
the fall in oil prices results in winners as well as losers. The winners are
broadly spread, the losers are usually in specific locations” added Mr. Levy. “Investors
are acknowledging the changing global industry dynamics, including the U.S.
push for energy independence, the decline in OPEC’s power and growing political
support for the international trade of domestic liquefied natural gas (LNG) and
crude oil – all of which could potentially have positive implications for
Houston and the U.S. energy sector.”​

CBRE
Research’s global perspective is that most of the oil-producing economies face
a tough 18 months or so. “Russia, for instance, is expected to see its GDP
decline in 2015 by 5 to 8 percent. However, led by the U.S., overall growth in
the world economy is expected to pick up in 2015 and 2016. This will provide
some support for oil prices, which we expect to drift up slowly from this point
onwards as some production capacity comes out of the market,” said Richard Barkham​, Global Chief Economist, CBRE.​

“It was
always clear that the beneficial effect, on consumer spending for instance, would
only show through in the medium term. The pain would be near term and localized
in energy-centric markets, such as Houston and Calgary. Houston can at least
look forward to some offset for falling energy-related investment from revived domestic
demand growth across the whole of the U.S. The same cannot be said for Russia,
Venezuela and Nigeria,” added Mr. Barkham.​